The Consumer Bankers Association (CBA) appreciates the Banking Committee’s interest in tailoring the regulatory framework to foster economic growth. From underwriting loans to main street businesses to providing banking services to previously unbanked or underbanked consumers, CBA member banks are integral to fueling the economic engine that drives prosperity. As such, we would like to take this opportunity to submit the following comments on the hearing entitled, “Fostering Economic Growth: Regulator Perspective.” CBA is the voice of the retail banking industry whose products and services provide access to credit to millions of consumers and small businesses. Our members operate in all 50 states, serve more than 150 million Americans and collectively hold two-thirds of the country’s total depository assets.

Regulatory Coordination

The financial regulatory framework that oversees safety, soundness and consumer protection is a complex system that lends itself to silos within each agency and an overall lack of coordination among regulators. Greater regulatory coordination to limit redundancy is needed, particularly when major industry issues arise that require regulators to move swiftly.

Oftentimes, multiple banking regulators conduct independent reviews based on their supervisory jurisdiction while targeting the same issue. In addition to the challenge of managing multiple information requests, different agencies have differing interpretations and can hold banks to inconsistent standards of regulation and guidance.

The onslaught of demands placed on banks from numerous regulators can prove duplicative and force a reallocation of valuable staff resources away from the development of innovative products that better serve America’s consumers and small businesses. Ultimately, the reallocation of resources to satisfy the multitude of requests from regulators diverts focus from the real business of banking and harms our members’ ability to serve their customers.

To help illuminate the lack of regulatory coordination faced by industry, CBA would like to provide the following examples:

Example 1

The CFPB was granted a significant new authority, when compared to other banking regulators, to issue enforcement actions based on unfair, deceptive, or abusive acts or practices (UDAAP). The inclusion of “abusive” within the power and scope of the CFPB’s authority has proven to be a powerful tool that the Bureau can use to bring enforcement actions and levy penalties over the institutions they supervise. As the CFPB wields this new and undefined authority, the prudential regulatory agencies also have authority to enforce traditional unfair or deceptive acts or practices (UDAP) powers under the Federal Trade Commission Act, even against large banks subject to CFPB supervision. In addition to UDAAP and UDAP at the federal level, financial institutions are also potentially subject to a patchwork of 50 state consumer protection laws—often referred to as “mini-UDAP” statutes—even further complicating the regulatory arena.

The prudential agencies continue to assert UDAP as the basis for supervisory findings during examinations, apparently without consultation with the CFPB, which not only creates duplication and overlap but could result in divergent interpretation and application of the legal standards. This tension can also occur in the fair lending space, where the prudential agencies retained authority under the Federal Housing Act, notwithstanding the CFPB’s general responsibilities in the fair lending area.

To ensure proper regulatory alignment, Congress should repeal the CFPB’s overly broad “abusive” standard and establish a single regulator to examine and enforce UDAP. Additionally, Congress should make the federal UDAP standard preemptive of similar state laws. These steps would eliminate duplication and ensure that there is a uniform standard for UDAP.

Example 2

In the supervision of student lenders, regulatory overlap has led to conflicting advice. For example, CFPB guidance encourages loan modification programs, but the Office of the Comptroller of the Currency (OCC) restricts them to limited circumstances. There have also been inconsistent regulatory expectations with respect to servicer influence and oversight by banks. There are some industry standard practices that are now being criticized by bank regulators, but banks have very little influence to change them (e.g., student loan servicers who consolidate multiple student loan accounts into a single statement and determine payment allocation order). The CFPB has supervisory authority over servicers, yet prudential agencies may require banks to directly influence change.

The above constitutes only but a few examples of why Congress and the Administration should consider a much needed review of the financial services regulatory framework and address the duplication of regulatory efforts.

To find solutions to the problem we outlined above, we encourage Congress to commission a study of duplicative regulation in the industry. By taking a close look at all of the guidance, FAQs, public announcements, and policy statements that have been issued, Congress should determine where duplication and scope creep exist, and work to ultimately refine mandates and eliminate overlap. We also support the creation of an Office of Financial Regulatory Coordination with an official ombudsman. The purpose would be to address duplicative exams, enforcement matters, and frequent overlap, giving banks an outlet and providing protection against regulatory overreach that stifles consumer and small business lending.

Small-Dollar Lending

Prior to 2013, several banks offered small-dollar bank loans, often known as deposit advance products (DAP), to meet overwhelming consumer demand for access to emergency credit. Unfortunately, the Federal Deposit Insurance Corporation (FDIC) and OCC issued guidance (2013-10101; 2013-0005) in 2013, which effectively eliminated the ability of the financial institutions they regulate to offer a viable alternative to compete with payday lending. The FDIC and OCC guidance recommended the use of underwriting that is more appropriately applied to a much larger credit product, such as a mortgage loan, and placed other restrictions on the products. This, combined with a low interest rate environment, has made small-dollar credit unviable and has forced banks to exit the market.

Furthermore, the CFPB is prepared to finalize a proposed rule covering payday loans, vehicle title loans, “high-cost” installment loans, and lines of credit that would make it difficult for any lender to offer affordable, easy-to-use products.[1] This small-dollar loan proposal is incredibly prescriptive as it would effectively create a narrowly tailored product designed to operate within a very constrictive regulatory scheme. In general, we find this approach to be an inappropriate exercise of the CFPB’s UDAAP rulemaking authority, as remedies for alleged unfair or abusive acts or practices should be tailored to those practices observed and not used to dictate product offerings filled with ancillary provisions that have little if anything to do with the alleged harmful practices.

To ensure consumers have access to small dollar credit, CBA recommends Congress encourage the FDIC and OCC to repeal the DAP guidance that was issued in 2013. In addition, we recommend the CFPB work in coordination with the prudential regulators in issuing any rule or guidance related to small-dollar lending to ensure a consistent regulatory environment that is conducive to small-dollar lending, as opposed to one that pushes already heavily regulated banks out of the short-term liquidity market.

Systemically Important Designation for Financial Institutions

Currently, the Dodd-Frank Act designates a financial institution as systemically important by an arbitrarily low $50 billion asset threshold. This approach is a flawed measurement tool used by the Financial Stability Oversight Council (FSOC) to assess the risk an institution poses to the American financial infrastructure. FSOC should strongly consider changes to the methodology used to determine if banks are “systemically important” by evaluating the complexity, scale, and activities of the individual institution, not a simple asset calculation.

Requiring FSOC to evaluate a number of factors, beyond asset size, will provide a more accurate risk profile of the bank and depiction as to whether an institution could be declared systemically important.

Financial Innovation

The banking industry has a long history of success in bringing the benefits of technology and innovation to our customers. From ATMs to online banking to mobile banking, CBA believes innovation is the foundation for banking the unbanked, better serving our customers, and providing consumers with the tools to take firm control over their financial lives. That is why we are strong supporters of the OCC’s Responsible Innovation initiative and its new Office of Innovation, as we hope these changes signal a new mindset at the agency that is more welcoming of the industry’s innovation efforts. CBA would recommend the other banking agencies adopt similar offices in order to promote industry innovation.

While we are supporters of responsible innovation, we were surprised and concerned by the OCC’s proposal to charter fintech companies. CBA and our membership are well aware of these new entrants in the financial services marketplace and we welcome the new technologies and innovations they bring to all consumers. However, it remains unclear why the OCC believes it necessary and in the public interest to expand the scope of the national bank charter to incorporate non-depository companies with untested business models. The agency has issued both a Whitepaper and a Draft Licensing Manual without, among other things, providing a concrete definition for “fintech,” a sufficient rationale for preempting state authorities in this area, or comprehensively addressing the regulatory and supervisory framework that would apply to these companies.

CBA would urge the OCC to adopt a more deliberative approach to determine whether the national bank charter should be offered to fintech companies. Extending the bank charter to untested companies without fully addressing the risks posed by new business models could have unintended consequences for consumers and the U.S. financial system. We recommend the OCC conduct a thorough study of the fintech sector and hold industry roundtables to gather input from all interested stakeholders. And if the OCC ultimately concludes the public would benefit from a fintech charter, then the agency should issue a formal charter proposal consistent with the Administrative Procedures Act.

Conclusion

CBA stands ready to work with Congress and regulators to ensure a sound and coordinated regulatory framework that safeguards the American consumer, ensures access to credit for consumers and small businesses, and promotes competition in the financial marketplace. On behalf of the members of CBA, we appreciate the opportunity to submit this letter for the record.